Why I removed non-compete clauses from all contracts

Having a non-compete clause in an employment contract means an employee is restricted from associating with (or working for) any other company during their tenure in the organization.

These clauses are also used by organizations to prevent employees leaving, joining competitors, and potentially taking confidential information about the employer (or clients and contacts) with them. They often set limits about how soon after the end of their contract employees can work for a competitor.

The scope (and legality) of non-competes differs based on location. There are instances of businesses abusing non-compete clauses, but also there is discussion about whether they are needed at all.

Removing non-compete clauses has been one of the most influential decisions that I have ever had to make, and realizing the need for it was not a eureka moment for me and my team.

I became aware that this kind of clause is a blocker to the way we are shaping our workplace to be future-ready.  

I had recently announced a four-day work week policy within the company. Even though it is still an ongoing experiment, enabling it won’t make sense if the employees are not free to use that one extra day off the way they want.

One of the major trends that remote work brought has been polygamous careers. This is a great step to help employees pursue their passions and interests as side hustles. Especially in the tech industry, top talent definitely prefer polygamous careers, and it will influence the future of work and the corporate world. 

Focusing on new fields or learning more about the same field keeps employees’ work lives more interesting. It keeps them motivated and helps reduce burnout. 

Why indulge in anything that hampers employee growth? Removing non-compete was an act of trust that the employees notice every day.

My personal focus as a CEO has been creating an output-based working environment. Once I receive my share of output, my employees should not be forbidden from pursuing other opportunities.

Removing non-compete clauses is not a favor that companies would be doing to the employees; this links with personal time they are entitled to, and they should be free to use it as per their discretion. 

This was my entire motive behind removing the agreement for all new and existing employees of my company. But let’s dig deeper into why non-compete clauses exist in the first place. 

The impact of non-competes on employers and workers

Over and over, companies claim that both the employers and employees are benefitting from the non-compete. But it is just proving to be one quick measure to limit employees from  upskilling themselves, and finding good opportunities. 

A non-compete clause indicates a lack of trust in employees right from the moment they’re hired. The company’s focus should be on what the employee brings to their table. There are plenty of associated benefits of side hustles; the financial situation of the employees, no compensation after employment ends, skills that need to be polished, and beyond .

According to a study on non-competes in the US labor force by SSRN, 12% of low-income workers with an annual income of less than $20,000 and 15% of those with an annual income of $20,000 to $40,000 are affected by the non-compete clause in their organizations.

Implementing non-compete makes it difficult for people to leave. This allows businesses to underpay employees, as well as reduces overall job mobility. Hence, the ripple effect of a non-compete is not limited to individual workers/companies, it ripples down to the entire economy.

In 2019, the US Treasury stated that about 30 million US workers, roughly one in five, were bound by non-compete agreements.

One of the major concerns lies in the timing when the non-compete agreement is signed. According to a study, 70% of the employees were asked to sign the agreement after receiving their job offer, and shockingly, 47% of employees were asked to sign it on or after the first day of their job. This leave no option for employees to disagree. 

Evidently, it’s not worth restricting your employees. What’s in it for the organization? If you think that the non-compete is only an issue for employees, you’re wrong. 

When employees get better practical training in another organization, it automatically reduces your need to invest in learning. Moreover, they can use that additional knowledge to your benefit as well.

Tech companies and non-compete

The enforcement of non-compete agreements is not legal in California. If this is possible in the leading tech companies globally, it is obviously not possible for other companies as well. So here are a few reasons why tech companies should avoid non-competes. 

Limited enforceability: This clause can be enforced highly depending on the location. A non-compete is illegal in some US states. 

Drives away talent: Where would talent be more willing to work? The company that imposes restrictions on them or the company which gives them complete freedom to pursue whatever they wish to? Restricting them can be a major step towards struggles to attract talent in the future. 

Cost of litigation: The entire process of taking legal action against your own employees is costly. Is it a good use of money? 

Changing roles: Transitioning from one role to another becomes much easier with hands-on practice and experience, especially in the tech industry. Considering the demand for talent in the tech companies, they have to work extra hard in order to achieve a good employee retention rate.

The more freedom you offer to your employees, the more likely they are going to stay.

Conclusion

Employees have the right to change jobs whenever they want. The fear of information trade remains irrespective of the non-compete agreement. Moreover, trading confidential information is not that easy anymore. It’s not that simple for your competitors to remove your brand identity from one piece of information.

When you give freedom to your employees, you give them the ideal employee experience. With such experiences, trust, and dedication, comes better employee retention and loyalty. This is better for employers and workers alike.